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Monday, 7 June 2010

Background, Foreground and Sideground IP; Whence, What and Why?

There are certain provisions that are often used in licensing or technology transfer agreements, despite lacking any explicit stautory antecedent. One example that imediately comes to mind is the trio of "covenant not to sue/non-assertion agreement/non-suit agreement," which appear to be used interchangeably for a form of grant of IP rights that in some way is less than a full-fledged license agreement.

I have tried, without success, to trace where and under what circumstances these terms began, how they took root, why they seem to be more popular in the U.S. than elsewhere (I am perfectly ready to be corrected on this point!), and how exactly they differ from a full-fledged license agreement. In some heretofore unmapped fashion these terms, through a combination of draftsmanship and practical acceptance, have percolated from practitioner to practitioner, perhaps augmented by case law, to such an extent that their application today is not open to question (even if their exact legal contours are still open to disagreement).

Another example is the so-called "sole" license. Common wisdom holds that a sole license, as distinguished from an exclusive license, allows the licensor to make use of the licensed IP, in addition to the right of use granted to the licensee. Here as well, however, there does not appear to be an explicit statutory basis for the status of the sole license, as opposed to an exclusive, or non-exclusive license. The source of the sole license is equally uncertain.

Perhaps the most interesting trio of terms of this nature are "Background IP/Foreground IP/ Sideground IP." Appearing most typically in joint development agreements or R&D consortium projects, these three terms roughly refer to (i) ("Background IP--the IP rights belonging to each of the participants prior to the commencement of the arrangement) (ii) "Foreground IP--the IP rights created by the parties within the framework of the agreement and (iii) "Sideground IP"--a more recent addition that refers to IP rights created by the parties during the period of the agreement, but outside the framework of the arrangement. Use on this trio of rights appears particularly prevalent in EU-sponsored agreements, but they have entered the lexicon of wholly private R&D and consortium arrangements.

I have always felt a bit uncertain about the precise status of the rights embodied in these terms (as for their pedigree, I would be delighted to be enlightened by a reader). Take Background IP. To what extent must the Background IP be disclosed; to what extent can the disclosing party reasonably rely on an undertaking of confiddentiality by the members of the arrangement; under what conditions must (or might) the owner of the Background IP make these rights available to other members for commercial, as well as internal development, use? These, and related questions, create a category of third-party use of IP rights that is not quite a standard licensor-license arrangement, but for this Kat the category still eludes clear definition.

Sideground IP is the newest addition; presumably, it has arisen by custom due to certain situations that made it desirable to carve out a separate category of IP rights created by a party, but which lie outside the scope of the agreement. As with Background IP, Sideground IP belongs to the party creating the right, and it is not subject to whatever mutual undertakings the parties may have entered into with respect to the Foreground IP. On that basis, the presence of a clause that states that must seek the right of use directly from the owner of such Sideground IP seems obvious once the term is defined, but providing this possibility as a declaratory matter probably does not prejudice anyone in the arrangement.

Foreground IP is the category which yields the greatest amount of diversity and uncertainty. This is not surprising, since it carries with it all of the potentially undesirable aspects of joint ownership of IP, circumstances that may be well-nigh unavoidable within the context of an R&D program with multiple members carrying out diverse tasks and coming from different starting points (read: Background IP). Does the agreement simply provide that the party creating the Foreground IP is its owner; if so, what are the terms of use by the other members? Moreover, if the development is joint, how is this determined; what are terms of ownership of each of the joint owners; what are terms of use of the other members? Will there be circumstances in which the parties will be required to assign its ownership rights in the Foreground IP, with the resulting multiplicity of assignments needed to create joint ownership by contract?

What is common to all three of these categories of rights, and the questions
that arise with respect to each of them, is the underlying fact that none of them is creature of statute or similar legislative diktat. This fact has a powerful implication, not always appreciated, namely that there is no single, common font of meaning for these terms. This further means that when one encounters these terms, he or she should not feel embarrassed in admitting a certain sense of unease in fashioning their meaning within the context of the specific agreement. Custom and widespread acceptance have made them part of the licensing and technology transfer lexicon, but this has not replaced the need for vigilant lawyering in their particular application.


Jeremy said...

The lack of fixed meanings for these terms, and the absence of a specific statutory framework, doesn't seem to me to be a problem. Rather, it's a positive reflection on the flexibility of contract law to accommodate the expressed intentions of parties who are either entrusting each other with IP or hoping to create fresh IP. We can use whatever terms we want -- and we can give them whatever names and meanings we want -- subject only to restrictions imposed by public policy and competition law.

There are loads of terms you find in licences that don't have any former or current statutory basis, aren't there? No-challenge clauses, quality control provisions, terms providing for variation on reaching milestones -- and indeed the whole fabric of FRAND licensing by standards-setting groups.

Gentoo said...

The Amerikat's recent postings on American Needle v NFL also provide additional perspective.

The recent Open Source Software ruminations with regard to WebM and Google's licensing provide some of the whence: both defensive and offensive: see,, plus this one

Then there is

Anonymous said...

In fact, these licensing deals are very complex. The absence of statutory meaning indeed allows to shape them to the needs of the deal and most agreements (when properly drafted, that is) will define those terms.

Mark Anderson said...

Neil, I think the pedigree goes back at least to the early EC funding agreements under the Framework programmes (Framework 1?), where these terms have been used in "Annex II" to the European Commission's standard contract for many years (I am guessing since the 1980s). I wouldn't be surprised if they invented these terms.

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